Application of IHRM Concept in China - Unilever and P&G - Case Study Example

Application of IHRM concept in China: Unilever and P&G Name Institution Application of IHRM concept in China: Unilever and P&G Introduction The market is becoming highly competitive that most multinational corporations (MNCs) are developing strategies to maintain their competitive advantage. As a result, there is need for transforming not only the products and innovations but also the organizational structures. The backbone of every business entity is its human resource management (HRM). Therefore, in every organization, HRM department needs to undertake certain important roles including human resource planning, training and development, industrial relations, performance management, and compensation and benefits (Fan, 2002). Having such activities in place, then an institution might have a chance to prosper within international markets. International Human Resource Management (IHRM) is quite different from the domestic HRM considering the variations in cultures, legal structures, and the prevailing economic conditions of the host countries. It is from such background the essay will be focusing on IHRM based on the cases of Procter & Gamble (P&G) and Unilever with headquarters in the United States and Netherlands respectively. Moreover, the two companies operate within the FMCG sector and host some of their activities in China. For every FMCG company, brand innovation is significant since the more the product line, the better chances of acquiring sustainable growth within the market. The two companies are highly competing with P&G admitting that is mainly focuses most of its activities within the home market (US) than the foreign market which hampers its growth while Unilever is as well good in home market (Europe) and foreign market. Through the 1990s, both companies experienced massive growth as most of their brands matured and becoming subject to competition majorly from the supermarkets that had own-label products. Both companies came to realize the existence of economies of scale and scope to be acquired through focusing on small categories and brand. In turn, the companies began substantial programmes of disclosure, reorganization, and divestiture with much emphasis on centralization. P&G moved faster than Unilever in such direction and reorganized itself in a more centralized way in China with greater focus of the activities by the corporate headquarters (Hill, 2003). Alignment of the Cultural Systems The ability of the HRM to attract, retain, and motivate the workers is the key competitive factor for companies wishing to explore international markets. Most MNCs are usually concerned with finding methods of developing effective HR policies that are adoptable to different national environments stating the important roles played by the HR strategy in implementing international high-tech. countries do different things differently (Shenkar & Luo, 2008). Such differences include the manner in which HRM is conceptualized; method of exploring the HRM research tradition and method in which it is conducted. China is one of the global emerging markets with more businesses scrambling to venture within its economy. To fit into China’s culture, P&G had to make significant changes in its corporate and operational strategies to within the competitive economy. With its rising populations and disparity in the employment rates, the HRM of P&G had to adjust to certain legal frameworks that regulate the HRM activities. Cultural differences in China influence greatly the management of MNE’s (Lau & Roffey, 2002). In addition, the significance of cultural integration lies within the dynamic society. Organizational culture refers to the norms, shared beliefs, and values, which define how the work is done within the organization. Essentially, it relates to the manner in which businesses achieve the outcome through the behaviors of the people and drivers producing the behaviors. As the gap that occurs between the U.S culture and China widens, the likelihood of P&G conforming is reducing (Selmer, 2002). With such cultural gap, the company has been able to conform to the local customs and practices to reduce such gap. With reference to the modern China, P&G changed its recruiting practices and conformed to the cultural influences of the Chinese (Ke, Chermack, Lee, & Lin, 2006). In China, there are still communist philosophies including reliance on the government integrated with other cultural concepts of the Chinese, which are also barriers to P&G in trying to achieve its outcome. In China, Guanxi is a measure reflecting on the feelings of interpersonal relationships, moral responsibilities to maintaining such relationships, and the idea of being perceived as morally correct while ones place within the society. Moreover, it is significant to note that it influences business interactions including employment, financial transactions, and social interactions (Peterson, 2004). In the U.S, HRM practices involve selection of the people based on their knowledge, competencies, and skills. However, in China, “guanxi” is a barrier to such strategic recruitment and selection used by the P&G as it requires building of the relationships ahead of time (Shen & Edwards, 2004). With the diverse culture in China, integration of culture is a critical issue for the company. Most Chinese value their culture and it is a critical factor for the MNEs in China. In such regard, the difference in culture business entities is also another source of attrition. Without effective definition of the prevalent culture, it is quite difficult to difficult to deal with issues associated with cultural integration. Upon entering the market, P&G witnessed such problems when it failed to consider the cultural diversity of China when entering the market (China Economic Review, 2009). For example, the Chinese workers often have communist philosophies that each person has equal rights, which differs from P&G concept that defines and recognizes the employees based on their performance and contribution to the organization (Lewis, 2003). Therefore, its culture requires the employees to focus on the customers and implement systems that allow recognition of high performers and punishment for those falling behind. Most of the Chinese often find it difficult to adjust to such culture where their level of performance is graded constantly against others, especially in the modern society. Unilever also experienced issues associated with cultural alignment as it stepped into the China’s market. The employees and managers from the Netherlands are used to democratic environment and have the freedom of raising their concerns whenever there is need. Consequently, the Netherlands’ HRM culture recognizes the important of engaging the employees in organizational management and the significance of integrating their views into management issues. However, the China’s culture on employee management is quite different as it involves proper practice of authority with greater power distance between the employees and those in management positions. China’s management culture requires the management to control business operations but the employees undertake their duties without raising immediate concerns. To ensure effective management within the market, Unilever also experienced certain implications for failing to address some of the cultural integration issues in China. The major factor that has created strong resistance to change in China is coexistence of the traditional and reformed economic, institutional, and cultural systems, which also create problems for Unilever’s human resources areas such as job design, motivation, productivity improvement, leadership, and organizational development through the transfer of knowledge. Knowledge transfer is the movement of knowledge, practices, and policies from the home country to the host. However, the flow might be one-way from the parent to the subsidiary or a two way, the parent and the subsidiary. In China, the employees have many sources of power that they utilize in blocking the transfer of knowledge. For example, most of them have superior knowledge of the Chinese language and culture, which they use in promoting their local culture while restricting impositions of Unilever on them (Zhu, Thomson, & Cieri, 2008). It is significant to note that the expatriates have the capacity of facilitating, disseminating, and transferring the standardized practices and knowledge of Unilever into China. With the high expatriate presence of Unilever, it has been able to abide by the management practices guiding MNE’s HRM wary of the traditional practices in China to close the existing cultural gap (Brentani, 2004). Moreover, the expatriates play critical role in setting the overall organizational strategy and transferring of the administrative heritage. The expatriate concept used by the Unilever assisted in reducing cultural differences as it spreads the explicit knowledge by adopting employee handbooks, standard operating procedures, training manuals, and valuable tactic knowledge of managing the company. While establishing the company, the expatriates from Unilever already conducted a market analysis of China, participated in and oversaw most of the operations taking place in the Chinese market. These activities allowed for long-term dialect with the Chinese employees, which offered an opportunity to negotiate the cultural values and expectations for effective transfer of knowledge (Dooley & Frankel, 2003). Essentially, Unilever demonstrated that even with the presence of few expatriates, there is still possibility of having great impact as in the Netherlands. However, using the expatriates in China has several implications since some expatriate might not be able to speak the Chinese language, talk directly to their staffs, and reading legislations in Chinese. These factors might have detrimental impact on the long-term relations and the outcomes of the business. Adopted Approaches for Alignment In the U.S, most HRM focus on performance appraisal in measuring the achievements of individual employees. The main objective of the tool is to assist in the identification of potential obstacles and challenges for the improvement of the employee performance. Employers in different countries utilize the tool variably (Liu, 2003). P&G entered the Chinese market with the concept of performance appraisal to ensure effective performance of the employees. In the U.S, the tool is result oriented that encourages individual achievement, increased productivity of the employees, and ultimately ensure organizational enhanced performance. Initially, P&G tend to rank pay as its major preeminent method of appraising performance. Additionally, the company considered the method of documenting the performance of the employees. However, China’s culture views the concept differently, which forced the company to make certain adjustment in its operations. In China, the performance appraisal technique is far down the list since they consider it trivial due to the inherency of Chinese organizational structures (Chumpitaz & Paparoidamis, 2004). Most Chinese managers emphasize on the moral characteristics and personal attributes like loyalty and obedience. The implementation of the performance appraisal in China differs significantly to that of the U.S and difficult considering the well-known challenge of receiving an effective feedback. Such practices, in China, are believed to overemphasize on the reason behind measuring reward and punishment instead of focusing on identifying the potential ability of the workers and what they offer in the end (Hopkins, 2009). Instead of focusing on the performance appraisal, P&G had to change such management method and embraced the assessment method that is acceptable with Chinese cultural system. In such context, the company focused on training and ensured the development of the desired skills for its workforce. On the contrary, Unilever is also trying to maintain its competitive advantage. The cross-cultural diversity existing between the Netherlands and China contrasts considerately. In its headquarter in the Netherlands, Unilever values punctuality and believes that “time is money” with the culture that encourages risk taking and brief straight point dialogues that ensure minimum time wastage. When it entered the market, the company believed in fast effective and efficient business decisions within the shortest time possible due to its ambitions and futuristic orientation. Such activities work properly for the company in the Netherlands but in China, there is need to make certain adjustments owing to cultural differences (Saka-Helmhout, 2009). In China, due to its diverse philosophical background, it values the conducts of moralists more than any other thing (Ajami, 2006). Furthermore, the country experiences low individualism and high collectivism and a group orientation tendency. The country’s management system believes in conducting dialogues in harmonious environments or few arguments based on constructive criticism. In certain cases, there is lack of punctuality among the employees that do not value time to similar degree as in the Netherlands culture. Due to such differences in the cultural setups, it is important that the HR policies within Unilever make alterations to accommodate the differences to guarantee effective organizational performance (Hill, 2009). Through the years, the company has been emphasizing on positive employee-to-employee relationship as an important aspect contributing to pleasant work environment and satisfaction. With such cross-cultural differences in the HRM practices, the employers usually defer the local managers on certain HRM policy issues (Gamble, 2003). It is expected that the HR managers install policies that involve culture driven approaches while keeping in line with the standard code of conduct that are sensitive to the domestic norms and ethics. For example, the Chinese view gifts as part of business practices and value that builds both friendship and trust. Conclusion Currently, the main HRM issues that occur in China are cultural integration issues and problems associated with shortages of skilled labor contrast to the increasing demand. P&G and Unilever are two old and established companies. Both the companies have similar historical background as they grew from manufacturing of soap and detergents before shifting into home and personal care and food processing. Besides, they are the world’s leading businesses in provision of fast moving consumer goods industry and through the years, they have been rivals globally. Both companies expanded internationally from the interwar years onward and currently operate in the world’s major countries including China. However, Unilever has always been large, operating in different localities, and producing an array of products and brands. The two countries expanded their operations to China due to their internal growth and M&As. With expansions of business activities into international markets, management of human resources often becomes difficult considering the challenges associated with cultural differences and HRM requirements in the host countries. To manage such diversified activities, both P&G and Unilever focused on developing international and product divisions to manage institutional complexities through the matrix structures. Consequently, they gave important autonomy to their subsidiary companies, which in turn developed hierarchies in certain areas of management including marketing, finance, and HRM. References Ajami, R. A. (2006). International business: Theory and practice. Armonk, NY: M.E. Sharpe. Brentani, C. (2004). Portfolio management in practice. Oxford [England: Burlington, MA. China Economic Review. (2009). How to address China's growing talent shortage. 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